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Part 2: What can businesses do if globalisation unravels?

Business leaders face significant risks if the world becomes more fragmented. But there is much they can do now to avoid it and create instead a new, more sustainable globalised business environment.

As discovered in Part 1 of this blog series, globalisation may be reaching a tipping point and could be beginning to reverse. Although we live in a semi-globalised world, if the level of globalisation we have achieved unravels, we could enter a fragmented environment, which could be followed by economic depression, perhaps even devastating wars.

What can business leaders do when faced with an increased risk of globalisation unravelling? Many business leaders think that this is primarily a task for governments and that politicians have themselves to blame for the rising popular tide against globalisation in the West. But businesses have not only benefited from taxation and monetary policy gaps, they also have lobbied to shape some of them. A more constructive approach should be about what businesses can do to prompt and support better policy formulation.

Globalisation has been an overall positive force that has created wealth and lifted millions out of poverty. But it has also created staggering inequality and therefore, it has to change.

Business leaders have much to gain by saving it from itself. They have to think about how to create a more sustainable path for globalisation to work for everyone.

Going forward

Business executives need to reconsider the short-term vs long-term trade-offs when they make decisions, with a rebalancing towards decisions that favor the longer term. In practice, this means that companies should bear a couple of things mind - safeguarding the benefits of globalisation for all stakeholders while correcting some of its flaws is in their long-term interest, even if it means inflated costs and reduced profits in the short term.

To create a more sustainable form of globalisation, business leaders could use a new decision framework. This framework would allow them, firstly, to think about how they formulate strategy in this new context and, secondly, to envision new decisions on the operational front.

From a strategy perspective, business leaders could develop a vision for maintaining the relevance of their business to all stakeholders and secure their firm’s longer term survival by focusing on the following:

• The local-global trade-off: Globalisation will survive if businesses can create local capabilities that make a difference to the wellbeing of the population of host countries, rather than exploit labor cost differentials. But in this trade-off they will also have to think more and more about the impact on home-country societies.

• Competitive positioning: Western businesses have lobbied for the removal of trade and FDI barriers for the past 30 years, so that they could reduce costs by exploiting arbitrage opportunities between high and low cost countries. By contrast, Chinese and Indian businesses that expanded abroad have been more respectful of the employment in the countries where they have acquired companies.

• Key resources and capabilities: Business leaders should ask themselves how they can help the net losers of globalisation who are tempted by the sirens of protectionism in Western economies. This could mean supplementing, sponsoring or leading governmental initiatives that engage in large-scale training programmes, in new sorts of public-private partnerships.

• Engagement with the institutional environment: Many business leaders who want to embrace a longer-term perspective face an uphill battle because stock markets are short-term oriented. Others might not be willing to change because their own incentives are aligned with those short-term gains. A dialogue with shareholders is necessary and should include rewards for top leaders that take a longer-term perspective.

In terms of the supporting operational decision responses, there are concrete initiatives that business leaders could take to redesign their operating model to support this new vision:

• Organisation structure: Empower all employees to act as ambassadors for creating a positive narrative of their company contributions to societies to reverse the current perception that globalisation is unfair.

• Digital technologies: Technology is often perceived as oppressive because many companies use it to cut costs. With the prospects of advanced robotics and artificial intelligence transforming the job prospects of hundreds of millions in the near future, engaging with this perceived threat, a black swan for globalisation, is critical. If companies can engage societies by showcasing how they will use new technologies and the type of impact they will really have on employment, they might make a better case for globalisation now. The trouble is that too many leaders still think this is too far off to focus on. Once again, taking the longer-term view is critical today.

• Management process: Multinationals should stop fiddling with tax loopholes, even if they are legal. Questionable practices by multinationals stoke popular resentment and diminish states’ ability to correct inequalities.

• Leadership and culture: As powerful drivers of culture and behaviors, financial incentives should not only be short-term but should take the long-term also into consideration. Embed sustainability and environmental issues in everything your company does, do not just pay lip service to these issues.

Assuming we can fundamentally overturn the negative impacts that globalisation has had on our natural world, economic globalisation is a positive thing. Business leaders, alongside politicians, have the power to positively reboot the concept but by placing it on a fairer and more sustainable track.

Stéphane J. G. Girod is Professor of Strategy and International Business at IMD. His research, executive development and consulting interest is the formulation and execution of strategy to restore or enhance firms’ competitiveness in complex, digital and (de)globalizing environments. He focuses on helping clients in emerging and developed markets to develop the systemic capabilities necessary to achieve higher levels of competitiveness.

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